A Call to Change Corporations
By Robert C. Hinkley
8 April 2021
Joel Bakan, the University of British Columbia law professor, has a new book out on corporations and their behavior. His first book, The Corporation, said that corporations were established under the law to resemble psychopaths. His latest book, The New Corporation, says that, as corporate citizenship has become fashionable, they have become something worse, psychopaths with charm.
Laws generally prohibit behavior that harms other people, the environment or our communities. What if there was a law that instead encouraged that behavior? Wouldn’t that be weird? Wouldn’t you want it changed?
Laws get passed usually after behavior is discovered to be harmful. Containing harm in this manner is one way democracy preserves the public interest and provides security to its citizens.
This is relatively easy when the harm is caused by individuals. Most individuals do not lobby in opposition to proposed laws that will prohibit them from continuing to do harm. The same cannot be said when the perpetrator of the damage is a big corporation.
Businesspeople don’t start a new business knowing it will harm the public interest. They find out about the harm only after the business has proved successful and millions, sometimes billions, of dollars are invested.
Here is where the law goes haywire. It dictates that directors, the people in charge of the company, must always act in the best interests of the company and its shareholders. As Bakan concedes, requiring the people in charge to work for the benefit of the company helps make capitalism work. Investors put their money in a corporation, they want to know that it’s going to be put to use to enhance their investment.
However, subservience to company and shareholder interests isn’t desirable after companies are found to be harming the environment or our communities. When businesses are discovered doing significant harm to the public interest, the law shouldn’t tell the people in charge to defend their company’s anti-social behavior above all else. Rather, it should require them to find a way to run the business that eliminates the harm.
Current law is the reason corporate anit-social behavior continues. Legislatures may try to pass bills that restrict the damage, but company lobbyists, under the direction of management, do what they can to delay or frustrate those bills and allow their companies to continue.
A debate ensues about what is more important, the public interest or the economy. This debate can go on for years while the public interest continues to be damaged. How long has the debate about climate change been going on with so little to show for it? How long have we known that tobacco kills millions of human beings each year? How long have third world sweatshops imposed inhumane conditions on workers and been used to threaten workers in developed countries? Debate maintains the status quo. This suits the company doing the harm and enhances its bottom line.
This makes the duty of directors “to act in the best interests of the corporation” responsible for more damage to the public interest than any other law. The effect of this law is that it tells directors their company’s continued destruction of the public interest must be defended. Worse, it justifies that defence.
Wilful corporate abuse of the public interest should be unacceptable to every citizen. We wouldn’t allow another human being to get away with it. Why should we let a big corporation?
No company should pursue its own interest at the expense of the environment or other elements of the public interest. The law should be changed to inform directors that, when their company is found to be significantly over the line, they have a duty to protect the public interest that takes priority over their duty to serve their company and its shareholders. Directors should be required to stop the harm, even if it requires stopping the business.
The way to turn this concept into law is simple. Add twenty-eight words to the duty of directors “to act in the best interests of the corporation,”
“but not at the expense of the environment, human rights, public health and safety, dignity of employees or the welfare of the communities in which the corporation operates.”
I call these words the Code for Corporate Citizenship. They should be included in the corporate law of every nation or state under which corporations are formed.
Bakan says in The New Corporation the corporation must be changed systemically and this will require political action, but he doesn’t suggest how. The Code is how. Every politician running for office in a jurisdiction which has a corporate law should be required to disclose to voters whether he or she supports the Code.
This effort is just beginning. I’m interested in hearing from non-governmental organizations willing to help put the question to candidates running for public office in upcoming elections. All ideas regarding how to best achieve this result are welcome.
Robert C. Hinkley was a corporate lawyer for more than 35 years. He can be reached at email@example.com.